China’s gold demand poised to decrease

According to Zhang Bingnan, secretary-general of the China Gold Association, gold demand in the worlds second biggest gold consumer, following India, may drop in the second half of the year.

China, like India and many central banks, were attracted by lower prices as gold declined 15% this year and experienced its biggest slump on April 15 and 16. Gold has lost 31% since September 2011 mainly due to shifting expectations whether Fed will scale down its quantitaive easing program prematurely. Commodity traders have been tracking and positioning this year mainly according news of the stimulus program.

May 22 Ben Bernanke, Fed chairman, said the U.S. may scale back its monetary easing measures in the next few meetings, if the labor market improves further. He said the Quantitative Easing program is currently providing “significant benefits”. Meanwhile, at the release of the Fed minutes the same day it came to notice that some policy makers think the stimulus measures should be scaled down in June. Strengthening of the dollar tends to decrease the prices of the dollar-priced commodities as it makes the greenback more attractive for investors. A more expensive dollar makes commodity prices costlier for foreign currency holders. Disappointing U.S. data on Thursday dampened concerns of an earlier-than-expected stimulus slowdown, thus shooting gold prices up.

Gold demand in China reached a record state in the first quarter, reaching 320,54 metric tons according to the China Gold Association. Purchases of gold bullions reached 120.39 tons, up 46%, and jewelry gained 16%, reaching 178.59 tons. Zhang Bingnan, secretary-general of the China Gold Association, commented: “The kind of frenzied buying in late April and early May won’t be repeated.”

And while private and institutional investors were frenzy cutting their holdings in gold-backed ETPs this year, central banks also showed increased physical demand and supported gold prices. Russia and Kazakhstan have been diversifying assets by buying gold after prices contracted with a record pace. The two countries have kept buying gold for a seventh straight month. Turkey is also on the list of countries, which have expanded their gold reserves. Turkey’s holdings increased by 18,2 tons to 427,1 tons in April, a tenth straight month rise. Belarus’s holdings increased for a seventh month and Azerbaijan’s and Greece’s reserved gained for a fourth month in a row. Gold demand in India, world’s largest buyer, will hit a quarterly record according to the World Gold Council and will reach 300 to 400 metric tons, equal to half of the total shipments last year.